City Harvest Church Success Strategy

A former colleague sent me this link: An Analysis into the Wealth of City Harvest Church.

The written word is forced into a linear mold. I took most of the arguments from the blog post and positioned the trees to form the forest in the NaviMap above. I shall be brief and my apologies to those who are unfamiliar with reading such diagrams. A lot can be written but that would be to fall back into linear form.

The key and interesting bits are the reinforcing loops (virtuous or vicious cycle depending on your perspective). They form the heart of the story.
Click on the picture to get a full size NaviMap if that is helpful to you.

While the enterprise was probably seeded by Box 1: An attractive and youth friendly church worship format, the goal is to arrive at the reinforcing loop between Box 6: "More Networking for the Successful" and Box 7: "More Success, More God's Favor".

Survivor bias ensures the monetary quality of this loop becomes more wealth concentrated. See Box 8: "The Unsuccessful Leaves" Such a church organization will win - totally man made.

For the leaders and financial beneficiary of the church, their interest is in Box 13: "Increasingly Rich Church". This is connected and flow via Box 11 and 12.

Box 9: "Trusted Network, Familiar Culture" is vital for the key reinforcing loop of Box 6 and 7.  A well established Box 9 would significantly contribute to the wealth gathering of the reinforcing loop just mentioned. Just consider how this might play out by looking at the YouTube clip on Jack Neo's testimony at City Harvest Church. What a way to gain trust and promote his new movie.

School Pressure in Singapore

Sunday Times today. Such stories of school kiasu-ism have gone on for years.

The NaviMap explains why.

Our narrow concept of success (box 1), which is the product of an elitist culture have created a vicious cycle between Box 2 and Box 3.

All our remedies so far has been to slow down this reinforcing loop, but lasting effect can only come from Box 4 - Wider Concept of Success. Tharman tried to get this started (has to be a slow process) by creating an education system and eventually a society where there are "many peaks instead of one peak". May be that is why they are investing so heavily in primary schools to make every neighborhood school a good school. This is really long term thinking but not well communicated to the people.

Errata: The blue arrow from Box 4 to Box 1 should be a dashed arrow!

Central Banks 'surprise' rate cuts

Central banks have just 'surprised' markets with rate cuts. The ECB and PBOC did just that yesterday. Here is what I see.

Business and employment prospects are becoming worse (box 1).

But for those countries with a debt disease, the money will not go out to the real economy but remained trapped in financial institutions or asset markets (box 4). Those without this problem, especially the emerging economies (box 3) it helps.

Overall these latest rate cuts smacks of desperate acts in a world that since 2008 had failed to make use of the time central banks purchased for them to restructure and retool themselves.

I wonder what comes after all these. Looks to me like we are only waiting for matters to get worse before substantial and durable action would be taken.

QE Shoring Up Markets

Consider where the reinforcing loop between Box 2 and Box 3 has gotten us! Now Box 2 is fed by the action of central banks printing money (Box 8)

Regulation (Box 10) has been stymied by lobbies and special interest. This is an untenable situation. It looks like we are not going to build a new world that can fuel growth beyond the capacity of the economies until this NaviMap is completely reshaped into something quite different. Box 9 and Box 3 are the places to watch, but Box 7 is key to determining what they might be.

The Printing Money strategy

If you can successfully avoid some of the pitfalls, printing money aka Quantitative Easing can get you out of trouble. 

So there is a mountain high of debt threatening insolvency (Box 1). If you have control of monetary policy, you can print money, which Bernanke had done in a big and scary way. Fortunately it is mostly the experts that are scared. If it had frightened the man in the street, confidence would have totally evaporated and this con will not work.

Box 2 will produce Box 3: Currency devalues. Now the debt becomes cheaper. Remember for this strategy to work, confidence must remain intact.

The stock market goes up (box 4), saves many investors from margin calls etc., The economy is supported. There is less layoffs than expected. Wait for a while, nobody believes the end of the world is nigh. Confidence goes up further leading to business investment. Also worn out equipment need to be replaced. Now all these must get traction before Box 6 assert itself.

Not in this NaviMap, but Box 6 is now determined more by financial markets that actual supply and demand. In fact, the prospect of subpar growth would have serve the economy with cheaper commodities. Only after Box 5 have taken off confidently would Box 6 negative influence asserts itself.

The printing money strategy works best for economies with sophisticated financial markets. America fits the bill the best. They are getting away with their con once more.

Risks of Bubbles in Soft Commodities



In NaviMap analysis, the Box 1, 2 and 4 is warning that the conditions for creating an asset bubble exist. Let's for a moment remove Box 1 "Economic Growth" from the picture. Then there should develop between Box 2 and Box 4 a  counterbalancing loop. The logic is like the population balance achieve from herds on limited grazing grounds. In reality, unless there is an unemployment problem, a reinforcing loop exist between Box 1 and Box 2.

In a primitive economy, there should a dashed line between Box 4 and Box 1. But in more advanced economies, it is a promoting line. E.g., an advanced economy will make capital investment in agriculture (Box 6) attracted by rising product prices. Furthermore, a developed economy have alternative ends for agricultural produce, i.e., bio-fuels.

Result: Spiralling agricultural commodities prices.

The long term bull case for such commodities is intact, but even in the short term, you could easily over pay for such assets especially Box 3 is an infrastructural support for speculation.

Government hates volatile prices. Under pressure to keep prices stable to pacify voters, it will time releases from strategic stockpiles (Box 5). This only make it doubly hard to invest.

Box 8 is to accomodate the possibility of Black Swans and Box 7 represents generational power that eventually reverse the logic of this NaviMap.

The totally successful monopolist

 

The ultimate successful monopolist will have

1. A virtuous cycle between Strengths and Opportunities.

2. A reinforcing loop in its favor between Opportunities and Threats because its Strengths had triggered it.

3. Threats that yields weaker Weaknesses as a result.

4. Eventually leading a a reinforcing loop in Strengths favor between itself and Weaknesses.

Note

Not easy to arrive at this sweet spot and neither can it last very long given that all reinforcing loops must eventually cease. Those that accelerate come to an end even faster unless they can find new sources of growth.

Easy to make the mistake of drawng a demotion line between Threats and Weaknesses

Pensions nightmare

Vote for change (Box 7) is the most benign scenario. It may not happen and some worse possibilities may be the unpleasant or even horrific reality ahead of us.

The drivers, i.e., can be represented as NaviMaps with reinforcing loops are not captured in this map.

Clearly what is going on is unsustainable. They say demographics is destiny. If put to the vote and the older people are the majority, the young will be bullied because the institutions are against them. There will be revolt. Some of the young will leave for better opportunities elsewhere. The society will decline rapidly, if not catastrophically. Pensioners must accept that the promises of retirement aren't there. They will have to work more years and many will never retire at all. Will they buy this? Fortunately the baby boomers do not all retire at the same time. A problem that presents itself as trickle provides opportunities for solutions that a tipping point situation just does not. The way forward is to cut benefits and retire later. Politicians have their work cut out for them, but will they be up to it?

Euro: No vicious cycles

Can't find any vicious cycle leading to an unstoppable weakening of the Euro when I thought through and create this NaviMap. If the European leaders are utterly incompetent, perhaps we will see the Euro finished. They may not be first class leaders but not completely hopeless (box 2).

We all know Greece catalysed this crisis for them (box 1) and a few more countries lumped together as the PIIGS countries are at stake because of their extreme indebtedness and their doubtful ability to service it. Box 1 and Box 2 caused large numbers of investors to lose confidence int he Euro (box 3). The Euro falls (box 4). At the "right price" remnant believers remain to shore up the value of the currency (box 5). Depending on Box 2 and may be over the medium term Box 1, the value of the Euro is decided.

Box 1 can lead to Box 6 which is the agent for contagion across the Atlantic.

Conclusion: Hard to see the Euro in free fall because there are no vicious cycles.

No to revaluing the CNY

The US is trying to get the Chinese to up the CNY or RMB so that the Chinese will import more from the US (box 8).  This suggetion would not fly as it would put the Chinese into an unacceptably risky position. They have been unambiguously clear that China's contribution is to keep China stable and maintain its growth against their export markets shrinking.

Boxes 1, 2 and 3 is the story of fiscal stimuls taking over from exports. The longer term future is to shift more toward domestic consumption (box 4). If the CNY goes up (box 6) as per US wish and the Chinese chagrined no, going by recent history, money will rush into China worsening the asset bubbles already inflating there. The US hopes to get the Chinese hooked on their consumption habit? See the link between Box 5 and Box 4. In this scenario, the Chinese will find it affordable with super cheap money to buy more from the US and everyone. However the longer term consequences to China would be extremely negative. Kudos to the Chinese leaders astute leadership of their country.

USD carry trade

Box 1, 2 and 3 describe the US attempts to inflate its debt away. Since there are so many foreign holders of US assets, they especially China and Japan are forced to help pay the huge pile of US debt. Indeed we are living that attitude: The USD is my currency but your problem.

USD depreciation (box 3) opens up a massive opportunity for borrowing USD at near zero, even negative cost to buy non-US assets. This is driving up asset markets world wide (box 5). There is a reinforcing loop between Box 4 and Box 5. Massive assets bubbles are being inflated all over the world. They are unsustainable and will burst. As usual, too few people know when it will happen. Go bet the markets at your own risk.

As long as the USD is the reserve currency. The US will succeed at getting the rest of the world to help pay its humongous debt. US fiscal policies and consumer habits must change or she would just at the end of the road become utterly bankrupt and completely uncreditworthy.

Combining Nov 7 and Nov 9 NaviMaps

The NaviMap of November 7, "The Economic Recovery Process" is linked to today's, "Making Sense of Rising Gold Prices" via November 7 Box 9, "> USD weakness" to November 9 Box 3, "> selling USD".

The "The Economic Recovery Process" is the driving force behind "Making Sense of Rising Gold Prices" transmitting its influence via the USD price signal.

Making sense of rising Gold prices

Central banks have too much USD. As they diversify from it, USD weakens. The USD will find hopefully a high bottom because nobody is going to zero on the Dollar. The Americans will decide and the rest of the world will react accordingly. The more tough minded they are, the stronger the Dollar.

The Economic Recovery Process

You would have to double click on the NaviMap above to see a larger picture.

A few interesting features here.

Box 1 and Box 8
No free hand for the Americans to print money. It is difficult trying to strike a balance. If they could have push even more money into the economy, they can quickly reverse the rising rate of unemployment. This is too risky as foreigners might give up on the dollar. Krugman seems to have ignored this point.

Box 9, 10 and 12
This reinforcing loop on first look does not make sense. USD should in theory strengthen (box 9). The USD doesn't behave according to theory because it is a currency of safety. The USD is the worst reserve currency except for the rest as Soros pointed out.

Hopefully with more of Box 3 and Box 5 at a critical point, when the expected returns from USD assets become attractive again, the USD will strengthen (box 12)

"Too Big to Fail", "Too Big to take a Pay Cut"...

An article from the NYT, "Where Politics Don’t Belong" caused me to put my thoughts into this NaviMap. It discussed, "Too Big to Fail", i.e., Wall Street, and "Too Big to take a Pay Cut", i.e., the income of doctors.

If governments and here I am using the American one as the example, would to leave the markets to decide what is produced, sold then the government would be much smaller and has less to do. Since politicians need to win voters support, they must always find something to do to continue in office. This result in "more government" (box 1) which inevitably leads to messing with the functioning of the markets (box 2) so that the constituencies they they want to get support have an advantage over others (box 3). Note that this lead to a reinforcing loop.

Special interest influence the process of government for their benefit (box 4). The easiest is to provide money to help politicians win elections. Now another reinforcing loop, and this time between Box 3 and Box 4 enters the picture, which is the current state of affairs. Special interests have taken over the government.

Since no reinforcing loop can go on forever, the limits of growth eventually appears. This lead to Box 5 becoming critical, where  markets becomes increasingly distorted, inefficient and uncompetitive (box 6). Voters get fed up - this is the demoting influence of Box 6 on Box 3. If it hasn't happen already, it would as a matter of course.

Box 6 will compete with Box 4 for Box 3, but with Box 5 becoming more a reality, the underperforming economy eventually give Box 6 the upper hand and Box 4 is vanquished. This is all well and good except that I wonder if this can be achieved peacefully or if the economy could have deteriorated so badly by then for some nations that they just simply spiral down.

"Old Normal" vs "New Normal" - A simpler version

Related Post

Where do we go from here: "Old Normal" vs "New Normal"

Yesterday I posted a more complicated NaviMap and offered only a cryptic write up on it.

The NaviMap above was created before the one in yesterday's post. The most important boxes is this NaviMap is the reinforcing loop between Box 2 and Box 4a. Box 4a is in blue to suggest that at the time of creating this NaviMap and even now, it is an objective governments hope to achieve in their effort to shore up the financial system.

Similar to the NaviMap from my previous post, if Box 3 appears before the virtuous cycle between Box 2 and Box 4a materializes, then this would lead to the "New Normal". Box 2 and Box 4a represents the revival of the "Old Normal" when people were making money hand over fist.

Inflation (box 3) will force monetary authorities to rein in liquidity or completely lose credibility. They will do it regardless of the political costs.

Another scenario is the "Old Normal" would last briefly, acting as a big bear trap for many investors. Box 3 will appear and bring the party to a premature end heralding PIMCO's "New Normal".

Where do we go from here: "Old Normal" or "New Normal"

This NaviMap tells two stories. One, how overwhelming government funds were employed to rescue the near collapsing financial system and succeeded. Box 1, Box2, Box A. and Box B. The the story continues with Box 3. (increasing asset inflation) because once fear is driven out liquidity naturally seeks higher return.

Ideally policy makers are trying to achieve one or two virtuous loops of economic growth. This is the hope for reinforcing loop joining Box 2, 3, 4, 2 and/or 2, 3, 4, 5, 2. This is the return to the "old normal" as opposed to the low growth "new normal" PIMCO is planning to live with.

Most economists do not think it is possible to return to the old rate of economic growth any time soon. The hope of politicians is that the printed money would be successful at helping them grow out of their troubles. What is to prevent this from happening?

Firstly the amount of debt is just humongous. Secondly, the financial sector has gone far off the course from lubricating the wheels of commerce. Instead lot of bankers spend most of their time on how to obtain a bigger bonus, and how to pass the tab to someone else if things go wrong. That this misaligment of purposes can somehow end up achieving our socio-economic objectives defies imagination

If given the fairly narrow window of opportunity the two virtuous loops did not appear, then Box 7 will eventually appear. It will effectively abort any possibility for the virtuous loop. Central banks will be forced to drain the liquidity from the system the way Paul Volcker had done before. It would be an environment aptly described in PMICO's "new normal" scenario.

China: Towards the Rule of Law

"The Rule of Man" (box 1) is stuck in my mind after I read Zhao Ziyang's book, "Prisoner of the State".

Box 1 describes how China is ruled but to a less degree than when Deng was numero uno.

Note the reinforcing loop between Box 1 and Box 2. The Communist Party knows this is what keeps them in power. As no reinforcing loop can go on indefinitely, fairly early on Box 3 (Corruption) has been growing, which is a demoting influence on Box 2.

In this NaviMap we introduce Box 4 - Social Progress.

Because of Box 2 over the last 30 years, we can talk about Box 4 meaningfully today. However the antagonistic relationship between Box 3 and Box 4 has created a "Tug of War" situation over Box 4. This is feeding back to Box 1 as a promote and demote Box 1 influence.

The Chinese correctly believed that nothing can be done to get China out of its poverty and onto a development path without economic progress (box 2). A worsening corruption situation (box 3) must be managed within the latent strength of their ancient culture. Zhao Ziyang believed that pervasive corruption (box 3) would be temporary. Looking beyond, he had felt that the Rule of Man (box 1) is temporary. Eventually it would yield to the Rule of Law.

Rule of Law (box 5) is the destination that the Chinese wants to be at eventually.

Historically they have never succeeded at scoring a permanent victory over corruption. Why should it be different this time? They are hopeful because the days of the emperors and the paramount ruler are over. Now they have to figure out their own version of democracy. They cannot do this quickly. The pace is dictated by Box 3. and Box 2. Social Progress (box 4) is in the centre of this tug of war. The ride we can be sure has been and will continue to be very bumpy.

NaviMap now has a companion blog

This blog attempts to cover to much ground. I have started a related blog at http://virtuouscycles.blogspot.com/ which is more focused on understanding and owning the virtuous cycles around us. I welcome you to visit Virtuous Cycles.

The Forgiveness Process

When you truly forgive (box 1) you let go of the bad memories that feed your hurt (box 1a), which was simply kept alive by Box 1c because you remember them, perhaps even nurse them! Time can cause your bad memories (box 1a) to fade but only if you do not indulge it by keep on reminding yourself about them (box 1c).

If you can really forgive (box 1), then you will eventually open yourself to rebuilding and begin to have a new view of the future (box 1f). This will help you to have new memories (box 1g) that will replace the bad old ones (box 1a). Finally you can really "forget".

You see what they say about forgiving and forgetting is not completely correct. It is more like forgiveness paving the way for new pleasant memories (box 1g) to take the place of old bad memories (box 1a). This will help you remember the old hurts differently because new memories replace bad old ones. This then is the true meaning of forgetting after you have learned to forgive.